Choosing the Best Business Banking

Bank jobs are considered as one of the most sought after careers in India. Good pay package, supplementary benefits, job security as well as a very good scope for growth are the main reasons why a large number of Indian youths are starting to get attracted to this lucrative career. Though a career in banking sector can sound to be meant for commerce or finance graduates but it does not hold true in the contemporary age. Nowadays, banks provide equal opportunities to graduates from all streams.

India is one of the fastest growing economies in the world with growth rate of 8-10% per year. This economic growth has resulted in various career opportunities in public sector banks, private sector banks and multinational banks based in India. Today we can observe that banks are into home loans, consumer loans, mutual fund, credit card business and forex activities. Every bank in India has been growing at a phenomenal pace with 30-40% growth Year on Year and all of them are centrally regulated by the Reserve Bank of India (RBI). Due to the hold of RBI on all financial institutions, banks in India including both public and private sector banks are not only highly profitable but also very stable.

These factors have also resulted in massive stability in bank jobs as well as high demand for banking professionals. Banks look for professionals having good communication skills, project analyzing skills, loan portfolio management skill along with good computer literacy. Public sector banks conduct recruitment drives in the form of written test and interviews at all India level. If you look at any of the advertisement of any Nationalized Bank recruitment drive, you can see there are opportunities for even 12th pass students with some computer knowledge at clerical level. Also there are general banking (Probationary Officers) posts for any graduates and special management posts in the field of Information Technology, finance and law practices and Marketing executive jobs preferably for MBA in Marketing. Even if someone joins at junior level (clerical) post he can reach senior positions with experience and enhancement in educational qualification. Public sector banks pay around Rs.6000/- to Rs.8000/- per month as base salary at junior level and Rs.25,000/- to Rs.30,000/- at senior level.

Earlier Banks used to impart training to aspiring professionals through an institution named National School of Banking. It used to prepare students for National level banks exams. Now-a-days same duty is managed by Institute of Banking Personnel Selection. You can visit ibps.in for further details. Also websites like bankbpo.in can help in preparing for exams as well as interviews. Solved question papers of previous exams and interview questions posted by senior candidates themselves are quite helpful in successfully tackling the recruitment process.

Banking exams in India normally comprises of papers on – 1. Reasoning Ability, 2. Arithmetic and Numeric tests, 3. General Knowledge and 4. English Knowledge. Apart from these common papers, depending on the nature of the job, additional papers on computer knowledge, finance and law can be included. Key factor in succeeding these exams is time management. About 225 questions are expected to be solved in about 150 minutes. It is important to equally divide your time to all the subjects and not to waste time in reading questions as in traditional exam papers. Quick decision-making is one of the key factors and an applicant needs to instantly decide on whether to attempt a question and should also solve the questions very fast without spending too much time on a particular question. Students scoring equally high in all subjects are short listed on merit basis.

So, the career prospects in banking sector in India are stable as well as lucrative and every candidate needs to be well prepared to the recruitment exams for bank jobs.

Establishing a business banking account is one of the first things company owners need to do. These accounts are vital for obtaining accurate accounting data and keeping track of allowed tax deductions.

When business owners mix business banking along with individual accounts they will likely end up undergoing an IRS audit. The time spent clarifying expenses and providing adequate documentation can be grueling and may lead to late fees and penalties, so it’s best to start things off on the right foot.

There are quite a few ways to setup a business bank account. Owners can apply online or visit banks in-person. They can select a basic checking account or apply for accounts that include merchant services, direct deposit payroll, or an open line of credit.

Many banks offer accounts that can be connected to accounting software programs such as Peachtree or QuickBooks. Interconnecting accounting software with business accounts help managers conserve time while providing adequate documentation for tax records. Additionally, this method lets business owners access their account from various locations such as work, home, and even while traveling.

Fees associated with corporate checking accounts are usually quite a bit more expensive than personal bank accounts. The majority of banks charge companies a monthly service fee. Some charge fees for every transaction, while others charge if transactions exceed a set number. Fees are also assessed for overdrafts and electronic transfers.

Although it’s never a good idea to bounce a check, companies can avoid expensive fees by setting up overdraft protection. This involves connecting business checking accounts to a savings account or credit card. If overdraft occurs, banks automatically transfer a preset amount of money into the checking account.

It can be very helpful to comparison shop banks to find ones that offer the most benefits and assess the lowest fees. A trusted source for comparing banks is BankRate.com, which offers information about national and local banks.

Small business owners may find it advantageous to open accounts with local banks or credit unions. Local banks tend to be more flexible and willing to work with owners that don’t have pristine credit. This can be very helpful to owners that require working capital or want to apply for business credit cards.

On the other hand, national banks usually offer a broader range of services than local banks. National banks engage in lending practices for small business to Fortune 500 companies, along with providing a variety of credit card options. Additionally, national banks offer integrated accounting services such as invoicing systems and direct deposit payroll.

The best approach for locating the right bank is to create a list of anticipated financial needs for the short and long term. While it can be challenging to determine what services will be required in the next 5 years, most owners can figure out if they will need business loans or credit cards. Spending time assessing overall needs can help owners avoid having to switch banks at a later time.

When comparing banks it’s important to read the fine print and calculate the true costs of conducting business. Make certain to fully understand the fee structure and checking account requirements.

Some banks charge service fees if balances fall below a certain limit. Others set limits on the number of transactions that can be conducted each month and charge hefty fees if limits are exceeded. Over the course of a year, banking fees can cost owners hundreds of dollars.

Researching available options lets owners find cost-effective business banking and can help determine which bank would be the best partnership. One consideration is that local banks frequently participate in community events where local companies are promoted. Acquiring bank endorsement can be very beneficial, so when talking to banks be certain to inquire about the types of promotional activities they participate in.

So, what is better; a business loan from your bank or a business loan from a private lender?

The answer is simply the one loan that you can get approved for.

But every business owner wants a bank loan. In fact, many business owners think that their bank is the only place they can get a business loan. But that is far from the truth.

Everyone wants a bank loan. Why? It is usually because bank interest rates can be lower.

Why do bank loans offer lower rates?

Banks typically have a lower cost of funds than other lenders. Depositors (their retail customers) keep a lot of money in their checking and savings accounts. Thus, banks have easy access to those funds to lend out. And, if banks don’t pay interest for those deposits or pay very little interest like they do today (under ½ percent) – then those funds are very cheap for the bank to use.

Plus, all banks can access federal funds. And, right now the federal funds rate has been stuck around 0.25% (a quarter of 1%) – very cheap considering that it is usually around 4% or 6% and has been as high as 19%.

Private lenders on the other hand either have to get funds from investors who are looking for decent returns or from other banks and financial institutions who lend these private lenders funds at higher rates than it costs them to acquire that money.

Either of which raises private lender’s cost of funds which in turns gets passed on in their loan rates.

Let’s look at an example:

A bank needs to earn a spread on their loans of say 6% to cover the bank’s direct expenses and overhead costs (their cost of being in business).

If they can acquire funds at 0.25% then they can lend them out at 6.25% and still earn their spread.

A private lender might need to earn a spread of 4% to cover its operating costs. But, its cost for the funds it lends out could be 6% or more to either repay the bank that lent them that money or to repay investors.

If the private lender’s cost of funds are 6% and its needs to earn a spread of 4% – it has to charge 10% at a minimum or go out of business.

Thus, it is easy to see why everyone wants a bank loan as opposed to a private lender loans.

But, banks are also opportunistic.

While banks can lend out funds at lower rates, they hardly do. Here’s why:

1) Banks see that their main competition (these private lenders) have to charge 10% or more – from our example. Thus, banks know that all they have to do is be below that figure to win your business.

Thus, banks can charge 9% or 9.5% and still beat the competition.

2) Banks have other ways to make money. Thus, if you don’t want to pay their high rates, they really don’t care all that much. They can still earn a ton of revenue from banking fees or from taking those cheap funds and investing them to earn their 6% or more (investments in stocks and bonds or through acquisitions). Thus, they really don’t need to fund your business loan.

3) Banks have stiff regulations that pretty much forces them not to lend to new or small, growing businesses. These regulations are in place to protect their depositor’s money but also tie their hands when making loans (things like time in business, high credit scores, high cash flow requirements and low debt-to-income ratios).

Plus, banks add a lot of other costs to their loans – including fees, reporting requirements, covenants, etc. that are not included in their rates but make the overall cost of their loans higher.

Private lenders, alternatively, don’t have all those restrictions or alternative ways to generate revenue (beside fees which only happen when they close a loan). In fact, they are usually in business only to make loans.

Thus, private lenders tend to be easier to get approved by.

Kind of a double-edged sword. Cheap money but hard to get on one hand and easy to get loans but higher rates on the other.

However, going back to the original questions, which is better? The answer still remains the loan that you can actually get; but it only remains true while you can’t get the other.

If you don’t qualify for a bank loan, make it your goal to grow your business to the point that you qualify for bank funding (you might not actually need it when you can qualify for it). But, in the mean time, if all you can get approved for is a private lender loan, then by all means; knowing that it is only temporary as your business grows.

Two things to remember here:

1) The difference between 10% and 6% on a short-term loan (say under three years) is really not that much given the grand scheme of growing your business.

2) Private loans are much better then not growing your business at all or losing your business altogether. As long as the use of those funds will return more than that loan costs – your business is really not losing anything.

Example: If you have an opportunity to earn $10,000 above the principal of the loan but can’t get a bank loan – do you just let the opportunity die or do you take the private loan and only realize say $9,000 in profits due to the higher interest rate?

You do what you have to do until you qualify for something better.

So, when seeking a business loan, which is better a bank loan or a private lender loan? It really depends all on what you can get approved for.